1st Rental bought, not what??

Question

So my husband and I purchased our first rental property in West Palm Beach. We currently have a tenant who covers almost the entire loan except $300.00. We currently have a hard money loan. Should we switch it over to a conventional loan, in 3 months when we are able to get out of it or buy another rental property based on my income with a conventional loan? And when does a bank start considering your rental properties as income instead of debt? I can qualify for one property based on my job, but I don't think I can qualify for two? Can someone point me in the right direction?

Many thanks,

Aprelle

Many thanks,

Aprelle

Aprelle Hawkins · Answer

It's a turnkey townhome we plan to hang on to. I'd love to get that information from you @Jon Huber.

@Mark Douglas thank you we are excited! Good to know we should see value in a year with most lenders!

@Alice K. Yes, the interest is higher. So I'll definitely look into getting out of the hard money loan.

@Travis Frenchak agree! I know if i get a conventional loan, we will be in positive cash flow by at least $350. I used the BP calculator!

Thank you for all the great advice.

Travis Frenchak · Answer

You're going to need to do something to get that property in the positive cash flow or you're going to be in a tough spot once you have to repair things. Hopefully getting rid of the hard money will at least get you to break even. I would definitely get that property cash flowing before you even consider buying more properties.

Jon Huber · Answer

@Aprelle Hawkins Hard money is expensive. If this is a long term investment, you should have a long term loan. You should have a sit down with a mortgage specialist. There are plenty of great ones in the area, and I can recommend some that I have used for my Palm Beach County purchases.

George Despotopoulos · Answer

Hi @Aprelle Hawkins it really depends on the lender and a few factors. Typically hard money lenders charge a prepayment penalty, even on this short-term financing, which is a bit unfair. Unfortunately it is isn't that uncommon, you should verify this, just to be aware what you'll be on the hook for if you do refinance.

Also, you will have to pay more fees to the lender to refinance, just another cost to be aware of at the outset.

Although, depending on your interest rate, it may very well be beneficial to refinance, pay any of those fees, and get a much lower interest rate to hopefully be cash-flow positive on the property. If you carry-out to maturity on the hard money, you will have to make that balloon payment at the end. If you can't for whatever reason, you risk foreclosure or paying more fees to extend if your lender offers it. It's usually best if you're holding onto the property to refi as soon as you can out of a hard money loan.

The good news is that there are lenders who qualify you based on the property's income and not your personal income. Also lenders who do not have a cap on the amount of loans you take from them as long as you meet their requirements on each new property. Your debt to income ration will not be a factor, the debt to service coverage ration on the property will be.

Let me know if you have any questions or if I can help in any way.

Feel free to message me.

Brian Pleshek · Answer

You're going to want to get out of that hard money loan.  They're intended for short term.  Many max out at 12 months.  Once you're out of that, you can worry about what's next.

Brian

Aprelle Hawkins · Answer

I meant to say Now What??

1st Rental bought, not what??

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